Raleigh Real Estate Decisions When Money is Tight
The only constant in life is change. Changes in life can be sudden. Too often, homeowners find themselves in a position where they can no longer afford their home. If you've been in this position, you know how many hard decisions there are to make. You've felt the flood of emotions. You've asked yourself the questions. You've wrestled mentally and emotionally with yourself and your choices. Do you borrow against the house, sell, or try to hold on longer even with a shrinking income?
How To Handle Your Triangle Real Estate Investment When Things Get Hard
The trick here is not to let yourself be paralyzed by hard decisions and the hope that things will get better if you just hold on. In your head, you know that you need to reduce your expenses, but in your heart, you don't want to give up your home. Where will you live? How are you going to make ends meet? What should you do?
You're a logical person. You've already counted your dollars, and you know when the well is going to run dry. It's time to take action and explore your options. Linda Craft & Team, REALTORS can offer years of experience from helping others in situations just like yours.
The Three Most Common Financial Hardships
The stress caused by a financial change is hard to deal with. You may go through stages of shock, disappointment, depression, anger, and sometimes regret. Sadly, many people living in a financial crisis also lose their marriage or their health because of the stress.
The good news is, financial hardship is usually temporary (depending on what age it hits you and what caused it in the first place). As a top Triangle real estate company, for over 30 years we have walked alongside many families in tough financial times. In our consultation, it is hard to tell families in such deep despair that things will get better, but soon, they find themselves back on their financial feet and excited about shopping for a home and rebuilding their life. Luckily, they have a new perspective from the lessons they learned.
Here are the three most common financial hardships that families face. These hardships have a way of destroying marriages, rocking families in a really bad way, and can lead to a loss of homes.
1. Medical Expenses
Failing health and medical expenses can hit you like a double-edged sword. When medical expenses and failing health hit homeowners at the same time, working again or at the same level may not be possible. This type of financial hardship may not be temporary. Health problems and medical bills may call for a drastic life change.
It doesn't seem fair that in caring for a loved one, medical expenses can become so high that you have to sell your family home to put the money towards medical bills. If you are young when this situation hits, it may be temporary. Soon, this time and debt will pass and you will be back in a home again. If you are older, realistically you may not have enough working years left to get out of debt. Selling your house to buy something less expensive may be your best solution.
If you are considering declaring bankruptcy, beware of the serious consequences and bankruptcy mills advertised on late night TV. Call us for a referral to an attorney that will guide you with your future in mind.
2. Job Loss
You got a new job, moved into a new home, a life was good. Until one day, you walked into work and were handed a pink slip. When your regular paycheck stops, it doesn't take long for most people to switch into crisis mode. They typically blow through their savings quickly, and then turn to borrowing money to make ends meet. They borrow from...
- Family members
- Retirement accounts (with high penalties for early withdrawal)
- Credit cards (with insane interest rates)
- And if they qualify, they borrow on their house (using an equity line of credit)
Keep in mind that the cash flow created from borrowing is temporary. It can become a ball and chain around you for your future. Don't dig yourself into a deep dark hole with this plan. It could lead to bankruptcy, short sale, or foreclosure. Even worse, the stress of long-term debt can lead to a life of regret, divorce, and even more heartache.
3. Consumer Debt (aka, Life Happens)
The car breaks down and you have no savings, so you put the repair on a credit card with 20% interest added to your repayment. Then your children need braces, and you are given a monthly payment plan from the orthodontist. You wreck your car, and now you have to buy a new one. A car payment of lease payment is added to your expense column. College costs continue to increase and slowly, with time, life circumstances cause unplanned consumer debt to grow and grow and grow.
You pay and pay, month after month, but the balance you owe never seems to shrink. Homeowners in this situation have a huge advantage over renters. They own something of value, and can sell it to get under the stress that follows high consumer debt.
Be careful of debt consolidation plans - they will ruin your credit. The total of your monthly payments may have gone down and feel better on your budget and lifestyle, but it is a major red flag on your credit report. Your credit score will drop immediately, and for years, everything will cost you more. The interest on your credit cards will increase, health insurance and car insurance may also go up.
Selling a house to free up equity to pay off debt is one of the best ways to pay off high interest rate consumer debt. Your house can be an ATM machine. Owning a home is an investment that grows in value. Unlike renting, when you own a house you can sell it at any time and move the equity you have gained anywhere you wish. If consumer debt is causing you stress, consider selling the house and starting over.
Consumer debt has high interest rates with no tax advantage and is a big ding to your credit score. A mortgage comes with a low interest rate that is tax deductible and is considered good debt on your credit report.
When consumer debt is stealing your joy and making your life miserable, my advice is to sell the house, get out of debt and then read Dave Ramsey’s Total Money Make Over so you never find yourself in this awful situation again.
Mistakes Raleigh Homeowners Make During Financial Hardships
1. Regretting Buying a Home in the First Place
It is normal to have buyer's remorse during a financial crisis. However, you have to live somewhere. Unless you own your home free and clear, if you don't pay you will not stay, regardless of whether you rent or buy.
If you were renting during a financial hardship and were evicted, your credit would be severely damaged. You wouldn't be able to rent or buy in the future for a very long time.
When you own a home, you may struggle to make payments, but you will have a tax write-off and reduce your own debt - not someone else's. Home ownership also gives you options that renting does not.
These options include borrowing against the house in an equity line to help your situation (temporarily). Before you borrow, please go back and read the job loss and consumer debt sections.
2. Worrying About What the World Thinks About Their Situation If They Sell Their Home
The reason you are selling is kept confidential when you have an Exclusive Listing Agent representing you in the sale. Homebuyers and their Buyer Agents never know why a house is for sale. The reason you are selling is not advertised or disclosed. Don’t worry or feel shame about your situation. Just be wise and take action to protect your future.
3. Waiting Too Long To Sell
Many people keep their mortgage and house hold expenses afloat by using all their savings, tapping into retirement accounts, or running up credit card debt. This is never a good plan. The financial hole just gets deeper. When we meet with people who have tapped into every cash well they can find, they all have regret and wish they called us sooner. If you are waiting, please go back and read the job loss section and consumer debt section.
4. Getting Behind in Payments and Running the Risk of Foreclosure
Catching up on back payments with all the penalties and interest added on is impossible for most families. The current rule for banks and mortgage companies is once 3 payments are missed, they will no longer accept a partial payment. To stop foreclosure, all back payments must be made with one single payment and the next payment is due within 30 days.
f you work with the bank to reinstate your loan they will add all the back payments, penalties and other charges to your mortgage balance, and then re-calculate a new payment which is higher than your previous. Many times this payment will increase over time... placing you right back into another financial hardship, with a mortgage balance higher that is now higher than what you can sell the house for.
Be careful asking the bank to help you. They have programs that sound good but, we can give you a huge list of people that have gone down that road before you and completely agree with my mother. “When things sound too good to be true, they usually are.”
5. Contacting the Bank to Ask For Help
Many homeowners in financial hardship reach out to their bank to ask for help. The bank will quickly offer a solution called a loan modification. If you qualify, they will offer you a plan for a reduced payment. This requires the submission of even more financial information than when you applied for the mortgage, and you must stop making your payments during a loan modification request. It generally takes 6 months for an answer, and most loan modifications are turned down. Those that are granted, are usually only a small reduction. And the friendly customer service rep probably forgot to tell you that the foreclosure clock starts ticking the first time you miss a payment - even when you're working with the bank towards a loan modification.
What You Should Know About Loan Modification
Let's cut to the chase. Here's what your mortgage company probably isn't telling you:
- The qualification for a loan modification is very similar to a new mortgage. You must have income and your debt ratio must be within their allowed ratios in order to qualify for a reduced payment. The debt and income ratios are almost the same as your new purchase money approval.
- If you have lost your job, do not have income, or your debt is higher than their ratios allow, they will not give you a loan modification.
- When you call your mortgage company to ask for help they will automatically put you in their system for about 6 months waiting for an answer. The person you talk to, even if they know you will not qualify, can’t tell you. They do not have the power or authority to turn you down. Their job is to put you into the back-logged system and send you a package to fill out so that the powers-at-be can deliver the bad news much later.
- Thousands of people who were approved for a loan modification will tell you their reduction in payment was a whopping $100 or $200 a month, and it was temporary. When the grace period ends, your interest rate and your payment are usually both higher than your original payment to them.
- You must be behind on your mortgage or they will not give you a loan modification. If they do give you a loan modification, all the missed payments, interest, and penalties will be added to your loan amount. Increasing your mortgage payoff and your payment.
- Your credit will be dinged by loan modification, and foreclosure is processing the entire time. In North Carolina, foreclosure occurs quicker than most states. The right to foreclose can happen after 120 days of missed mortgage payments.
This information may be hard to believe, but I am telling you the truth. As a CDPE who has helped hundreds of homeowners avoid foreclosure, the stories I am sharing are real life stories told to us over the years by our past clients. The entire loan modification process operates with zero common sense. If you feel you have to try, all I can say is fasten your seat belt. You’re in for a bumpy and dangerous ride, but the information you now have is a seat belt that will help protect you.
How to Make Good Home Buying Decisions in the Greater Raleigh Real Estate Market
The absolute best way to bullet proof your home from any financial hardship that may come your way is to pay off your mortgage as quick as possible. Imagine how different your life would be if your house was paid for and you lost your job. With a paid off mortgage, life’s unplanned crises such as job loss, health problems, or high debt loses its sting. The roof over your head is secure. No one can take it away from you. Now you really have financial, physical, and emotional security.
With a paid off mortgage you can live out the rest of your life on a smaller budget. Social security and a part-time job can supplement your retirement with ease. With a mortgage looming over your head every month, a financial hardship could mean you have to give up your home.
Keep in Mind....
Many financial gurus, accountants, and gamblers who love to use someone else's money to try and make money might say "This Realtor of 30 years is nuts. You need a tax write off and a home mortgage is the only really good one left out there." I say naw… you need cash in your pocket. A tax write off just means you have debt and if you don’t pay, you don’t stay when trouble comes along. Debt means cash that could be yours to keep is going into someone else's pocket as you make those monthly payments. Your payment goes into their pocket instead of yours.
Don’t be fooled by the glamor of a tax write off. My advice? Buy a home because it is a wise thing to do for your future security. Then, pay if off as fast as you can - an even wiser thing to do. Debt is bad... Even mortgage debt. Ask anyone with a paid off mortgage if they regret losing their tax write off.
How Can We Help You Through Difficult Times?
If you need home buying or selling advice, please call Linda Craft & Team, REALTORS for a free consultation. One of the great advantages of talking with a top producing Realtor like us, over an average income earning Realtor, is a top agent makes enough money that they do not need to sell you anything. We are here to help and will be around for years to help you again when the right time comes for you to move.
We have helped people find solutions, make excellent real estate buying and selling decisions, and guided our clients to wealth building for more than 30 years. If you find yourself in need of great real estate advice, that is tried and true over 7,000 times, contact us today.